Mustapha K. Nabli The World Bank Presentation at the 7 th AFD/EUDN Annual Conference European Development Research Network December 9, 2009; Paris, France

 A sense of optimism in Europe despite weak economic conditions ◦ Fall of the Berlin Wall and end of the Cold War ◦ Prospects of a Unified Europe and larger market  A sense pessimism in the South-MED ◦ Regional/International conflicts and wars ◦ Declining oil revenue with heavy oil dependence and collapse in growth, most countries got into some macroeconomic crisis ◦ Rapid growth in labor force and unemployment in part due to delayed demographic transition ◦ Decline in poverty stalls

Falling oil prices dampen growth Poor growth performance in 1980s

 Non-convergence of economic and social development outcomes  Poverty reduction continues to stall  Levels of life satisfaction low.

 EU-Med: Portugal, Spain, Greece  EU new member states: Czech Republic, Poland, Hungary;  MENA emerging: Jordan, Egypt, Morocco, Tunisia;  MENA oil-rich, labor abundant: Algeria, Syria, and Iran  MENA-GCC: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE.

EU-Med outperforms MENA with the exception of GCC Mixed picture in terms of convergence of social indicators

 Low global trade and capital integration?  Weak and slow domestic reforms?  Weak response of the private sector to reforms?

Positive effects of financial/trade liberalization in Europe and w eakening trade ties between MENA and EU Declining trade/investment flows in MENA until 2000s

Private investment as a share of GDP Reform episodes and private investment response

(1) Is it political instability and heightened political tensions? ◦ Continued Israeli-Palestinian conflict ◦ Conflicts in Lebanon, Algeria, Iraq, Yemen ◦ 9/11 and the aftermath  High uncertainty and risk  High cost of doing business

 Limited success of the model can be inferred from the successive attempts to adapt and change it: ◦ from Barcelona and Euro-Med ◦ to EU Neighborhood Policy ◦ to Union for the Mediterranean

Trade agreements in 1990Trade agreements in 2008

Potential complementarities: Declining labor force in Europe vs. Increasing labor force in MENA But the “politics” are opposed

 High degree of heterogeneity and fragmentation in the Euro-Med space in terms of development outcomes and levels of life satisfaction: ◦ Between EU and South-Med/MENA ◦ Within MENA between GCC and non-GCC ◦ Within non-GCC between emerging and natural resource dependent countries  The institutional framework for economic exchange is highly fragmented, with major fault lines regarding: o agriculture and services trade o energy trade o migration and security

 The political environment both domestically and regionally remains a big handicap for progress in the South-Med  The instruments used by the EU in its relationship with the South have not been successful in creating a common area of peace and prosperity.